The 'Helicopter
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
 | |  | |  | |  |
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Q2 GDP Up Only
0.7% Without
Government
Spending
Daryl Montgomery
08/27/2010
0.7% Without
Government
Spending
Daryl Montgomery
08/27/2010
boost that it provided, the U.S. economy only expanded at a rate that indicates the
U.S. standard of living isn't declining further.
The U.S. needs GDP growth (adjusted for inflation) at about 1.5% for the well-being of
the average person to remain the same. This is because of population increases and
other factors including some overstatement of the numbers. Actual growth, meaning
more jobs and increased incomes for the American people, only takes place when the
GDP number is above that level. The U.S. right now needs a substantial amount of
actual growth just to make up for the decline from the Credit Crisis/Great Recession
and to get back over eight million lost jobs. Despite many trillions in federal deficit
spending in the last few years, it's just not happening.
At the bottom of the Credit Crisis/Great Recession GDP declined at a 6.8% annual rate.
So far during the 'recovery' GDP growth has been:
2009 Q3 1.6%
2009 Q4 5.0%
2010 Q1 3.7%
2010 Q2 1.6%
Most of this has come from changes in inventories -in the first three quarters,
approximately two-thirds of 'growth' came from this one factor. Indeed this also would
have been true of the Q2 number as well if the inventory component hadn't been
lowered. Inventories for Q2 were originally reported as being responsible for GDP
growth of 1.05% (divided by the new 1.6% total, this would indicate inventories were
66% of Q2 GDP growth). However the inventory contribution to GDP was revised
downward even though according to the BEA, "Private businesses increased
inventories $63.2 billion in the second quarter, following an increase of $44.1 billion in
the first quarter". The smaller increase in inventories in Q1 was responsible for GDP
increasing by 2.64%. This is a peculiarity of GDP math. In 2009 Q4 inventories decreased
(yes, decreased) by $36.7 billion and this created 2.83% GDP growth. A decrease in
inventories also created a 1.10% increase in GDP in Q3 2009.
Government spending was supposedly responsible for 0.86% of GDP growth last
quarter. Subtracting that from 1.6% leaves only a 0.74% increase in Q2 GDP. Describing
this as anemic would be an understatement. The federal government however
accounts for almost a quarter of the U.S. economy and its spending increased by 9.1%
in Q2. This would seem to indicate that the federal government contributed a lot more
to Q2 GDP growth than what the BEA claims. It also begs the question as to how good
the GDP numbers will be when government spending significantly declines as it is
scheduled to do in fiscal 2011.
Q2 GDP would also have also been a lot lower without big increases in 'Gross Private
Domestic Investment', which was up a whopping 25%. 'Equipment and Software' was
up by 24.9% between April and June. In the recently released durable goods report for
July, it had a big drop, as did machinery and other components in this category. Two
years of stimulus spending is responsible for revving up the investment component of
GDP in the second quarter, but economic reports from early in the third quarter
indicate that its impact is already waning. We will have to wait though until just
before the November election to see the first numbers for Q3 GDP.
Daryl Montgomery
U.S. standard of living isn't declining further.
The U.S. needs GDP growth (adjusted for inflation) at about 1.5% for the well-being of
the average person to remain the same. This is because of population increases and
other factors including some overstatement of the numbers. Actual growth, meaning
more jobs and increased incomes for the American people, only takes place when the
GDP number is above that level. The U.S. right now needs a substantial amount of
actual growth just to make up for the decline from the Credit Crisis/Great Recession
and to get back over eight million lost jobs. Despite many trillions in federal deficit
spending in the last few years, it's just not happening.
At the bottom of the Credit Crisis/Great Recession GDP declined at a 6.8% annual rate.
So far during the 'recovery' GDP growth has been:
2009 Q3 1.6%
2009 Q4 5.0%
2010 Q1 3.7%
2010 Q2 1.6%
Most of this has come from changes in inventories -in the first three quarters,
approximately two-thirds of 'growth' came from this one factor. Indeed this also would
have been true of the Q2 number as well if the inventory component hadn't been
lowered. Inventories for Q2 were originally reported as being responsible for GDP
growth of 1.05% (divided by the new 1.6% total, this would indicate inventories were
66% of Q2 GDP growth). However the inventory contribution to GDP was revised
downward even though according to the BEA, "Private businesses increased
inventories $63.2 billion in the second quarter, following an increase of $44.1 billion in
the first quarter". The smaller increase in inventories in Q1 was responsible for GDP
increasing by 2.64%. This is a peculiarity of GDP math. In 2009 Q4 inventories decreased
(yes, decreased) by $36.7 billion and this created 2.83% GDP growth. A decrease in
inventories also created a 1.10% increase in GDP in Q3 2009.
Government spending was supposedly responsible for 0.86% of GDP growth last
quarter. Subtracting that from 1.6% leaves only a 0.74% increase in Q2 GDP. Describing
this as anemic would be an understatement. The federal government however
accounts for almost a quarter of the U.S. economy and its spending increased by 9.1%
in Q2. This would seem to indicate that the federal government contributed a lot more
to Q2 GDP growth than what the BEA claims. It also begs the question as to how good
the GDP numbers will be when government spending significantly declines as it is
scheduled to do in fiscal 2011.
Q2 GDP would also have also been a lot lower without big increases in 'Gross Private
Domestic Investment', which was up a whopping 25%. 'Equipment and Software' was
up by 24.9% between April and June. In the recently released durable goods report for
July, it had a big drop, as did machinery and other components in this category. Two
years of stimulus spending is responsible for revving up the investment component of
GDP in the second quarter, but economic reports from early in the third quarter
indicate that its impact is already waning. We will have to wait though until just
before the November election to see the first numbers for Q3 GDP.
Daryl Montgomery
